Stephen Johnson

The government promises to give motorists a $2000 rebate if they trade in a car built before 1995 for a low-emission, fuel-efficient model.

The scheme is designed to take 200,000 clunkers off the road and turn them into scrap metal - borrowing a popular idea from US President Obama's 2009 stimulus package.

The car industry has welcomed the $394 million proposal to give motorists a rebate on trade-ins between January 2011 and the end of 2014.

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The opposition says it's wasteful, while the Greens are upset funding for existing green programs has been reduced.

Unveiling the Cleaner Car Rebate, Ms Gillard cited five imported cars and only two Australian-made models - one of which isn't yet available - as examples of eligible vehicles.

"In terms of the cars that would meet the standards, we're talking about the kind of cars so many Australians drive, like a Toyota hybrid Camry, Holden Cruze, Ford Falcon EcoBoost, Toyota Corolla, Mazda3, Mitsubishi Lancer, Hyundai Getz," she told reporters in Brisbane.

The slow-selling Toyota Camry hybrid, built with a $35 million taxpayer subsidy, is the only available locally built car on Ms Gillard's list.

The four-cylinder Ford Falcon EcoBoost will not be marketed until next year, while Australian-made versions of Holden Cruze are yet to replace South Korean-built models in showrooms.

Labor says its $394 million promise won't add to budgetary pressures, with the scheme to be funded through reductions to existing green programs.

These include the carbon capture and storage flagship program, to put greenhouse gas emissions underground, and the renewable energy bonus scheme, which gives households subsidies to install solar hot water systems.

With Labor deferring an emissions trading scheme until 2013 at the earliest, Ms Gillard presented the cleaner car rebate as a green initiative that would reduce carbon emissions by one million tonnes over 10 years.

The new emission standards, due to start in 2015, would save 2.6 million tonnes annually by 2024.

But Opposition Leader Tony Abbott said the idea was a snub to Industry Minister Kim Carr, who rejected a similar idea as "extremely expensive" in February 2009.

"Bringing this program in, the government seems to have humiliated the industry minister who was dead against these when they were first mooted last year," he told reporters in Perth.

The Federal Chamber of Automotive Industries said one in five vehicles on Australian roads was more than 15 years old, and many did not meet environmental and safety standards.

With fleets buying the bulk of Australia's large cars, the Australia Institute think tank said abolishing the $2 billion salary sacrifice scheme for company cars would be a better way to reduce carbon emissions.

The Greens have criticised the government for taking funds away from existing green programs, but Climate Change Minister Penny Wong has said those schemes had not proved as popular as initially thought.

Family First senator Steve Fielding said funding for the cleaner car rebate would have been better spent on fixing public transport.